Can someone explain pension options, lump sums and tax to me please?

[SofaBricks]

Thank you!

I have a workplace pension , that has about £150,000 in. Between me and my employer I currently pay in about £800 per month. I make lump sums into my pension every march.

My total salary income is about £120,000, so I’m in that horrible tax zone.

My DH income is approx £60,000. His work pension is around £80,000

We have recently had an inheritance payout. We will save some, pay some off the mortgage and have about £100,000 spare.

Please can someone explain to me what I might be able to do pension wise? Either work pensions or private pensions.

what is the max I can put into my pension, can this be backdated, will be tax be adjusted?

We are both 45, 2 young children.

Slight kicker… I have stage 4 cancer, and whilst I am currently feeling ok, very sadly it would be a little foolish of me to think I’ll need a massive pension pot. But I do want to be sensible with my money.

In my absence, I’d like my DH to be well looked after, and of course my two young children.

Thanks a lot!

Firstly, just wanted to say I am so sorry to hear about your cancer and I cannot possibly imagine what you are going through.
In answer to your question, you currently have an annual pension allowance of £60,000 each tax year which is the amount that can be put in and still receive tax relief. The £60,000 includes your contributions, employer contributions and tax relief. You can also carry forward any unused allowance for up to 3 years so you could potentially put the whole amount into a pension.
You should check with your employer if they would match any increased contributions. If not, it would make sense to do a personal pension. If you invest in a personal pension then basic rate tax relief is applied automatically. You would then need to do a tax return at the end of the year to benefit from your higher rate tax relief.
I will send you a private message with some additional tips to help with an exact calculation.

Have you spoken to Pensionwise?

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Given the cancer diagnosis Macmillan might be a shout too.

Hate needing to ask this but have you got short prognosis/SR1 form?

If so make sure you are clear on what that does for you regarding benefits.

@Bromptotoono I’ve not spoken to anyone about this yet… just trying to get a basic knowledge myself at the moment. I will look into that though thank you.

Yes j could get an SR1 form. That makes me sad. My Dr would do it for me if I needed it. I don’t think i qualify for any benefits at the moment as I earn well and have savings. Are there any other benefits of having one?

Thanks @Cotswoldsmama90 for the info.

so if I put £40,000 into a private pension, how would that change my tax for this year, or last year?

my salary income is going to reduce in this tax year as I’ve moved from full time to part time.

my employer pay a set % of salary into the work pension, regardless how much the employee puts in. They don’t match, but it is generous.

In your circumstances i would max out the isa allowance for each of you (including the children) for this year and put the remaining money into high interest accounts in his and the dc’s names or even premium bonds so you can access if needed.

sorry to hear about your diagnosis, please do make sure you get professional advice on this as it’s not a standard situation, you must ensure your pension paperwork is properly sorted so your dh and dc get relevant money etc or consider trusts for each dc possibly. It’s not something most of us even contemplate but by ensuring everything is in order, you can then concentrate on beating it knowing you have plan b sorted

You're welcome.

Any pension contributions you make look at your current years allowance first. Assuming you and your employer together are putting £800 per month into a pension this is £9,600 annually.

If you put £40,000 into a private pension you would get basic rate tax relief automatically which is worth £10,000. Adding these together you would just use your allowance for this year.

When you come to do your tax return you would get additional tax relief as a lump sum at the end of the year.

Regarding SR1 you can claim PIP under what DWP calls Special Rules:

https://www.citizensadvice.org.uk/benefits/sick-or-disabled-people-and-carers/pip/help-with-your-claim/how-to-claim-if-terminally-ill/

PIP isn't means tested and isn't an 'out of work' benefit. I've worked in the past with well paid highly skilled people who've had congenital issues of who have lost facilities/faculties due to ill health or injury.

I’m sorry you are in this situation.

There are rules around pension contributions when you are terminally ill and you need to be careful. There could be implications for any contributions you have made in the 2 years before death (certainly if you knew you were ill).

You probably do not want to put any of your inheritance directly into your pension.

Pensions are generally less good investments than other structures like unit trusts and SICAVs. You have less flexibility and usually higher costs. The main advantage of a pension is that you can put in money pre-tax and hopefully be paying a lower rate of tax when you take the money out later in life. You got the inheritance net of tax and so there is no tax saving to be made by putting it into the pension.

However, if having the inheritance allows you to put more of your pre-tax income into the pension this year then that's no problem. One of my favourite words is "fungible".

Given your health situation you might want to think about what your estate will be if the worst happens, in terms of who will get the pension pot and also protect the total amount of money against IHT.